Paul Romer's theory on the importance of knowledge differs from traditional theory in that Romer
A) argues, that investment is not important in promoting growth, but that the acquisition of knowledge is the sole determinant of economic growth.
B) argues that an investment-knowledge cycle allows a once-and-for-all increase in investment to permanently raise a country's growth rate, while traditional theory argues that a once-and-for-all increase in investment leads to a higher standard of living but not to a higher growth rate.
C) argues, that an investment-knowledge cycle exists which requires that investment rates keep increasing or else growth rates will fall, while traditional theory argues that growth rates will not fall, although they will not increase either.
D) emphasizes investment rates while traditional theory emphasizes the importance of knowledge as a factor of production.
Question 2
A budget constraint represents the:
A) inequality in the incomes earned by various economic agents.
B) aggregate income earned by all the firms in an economy.
C) total money income that an agent earns in different time periods.
D) goods and services an economic agent can choose given her limited income.
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